FTT Embedded Finance


Building Societies: Challengers in our midst

While the UK banking community debates the competitiveness and viability of new FinTech entrants, challenger banks and innovative, customer-focused product offerings – real disruption to the industry may emerge from an established and long-standing group – Building Societies.

While the FinTech revolution evolves and matures, the overarching aim is to deliver better outcomes to end users, whether through more responsive and personalised products, reaching the previously ill (or poorly) served, and doing all of that cheaper, better and faster. Large banks still dominate the consumer and business landscape but, having taken on the digital mission, are bringing themselves firmly into the digital age. As part of that mission, the mantra of competition and disintermediation has been replaced by collaboration and partnership.

The time has come to look towards the UK’s established Building Societies as the true ‘challenger banks’. (if that term can be applied to institutions some of which are well over 100 years old…) By their very nature, these organisations were created with the intent to better serve communities and customers through better knowledge and understanding of both. Building Societies have been embedded in and served communities for a long-time and, largely unscathed by the reputational damage inflicted by the financial crisis, continue to exist to serve their members.

Building Societies are well positioned to leverage the benefits of technology to better serve their existing customers and gain new ones, allowing them to largely skip the hurdle in winning over customers in what is a largely trust based relationship. They already have what the new challenger banks seek (customers and trust) a portfolio of profitable and necessary products (eg savings and mortgages) and the benefits of the democratisation of access to technology. This should position them as worthy alternatives to both the incumbents and new challengers.

Policy-based initiatives, such as the PSD2 and Open Banking are not just for FinTechs and can underpin innovative new products for the customers that building societies serve. If access to data is all about better understanding customer need, their long-standing role in their communities gives them a leg up on the further potential of open APIs. Nationwide has a clear digital innovation strategy and has partnered with and incubated a range of FinTechs companies. The UK’s 44 other Building Societies need to bring digital innovation to the forefront of their strategies.

Newcastle Building Society recently became the first to launch a debt advice tool (developed by Paylink Solutions) utilising open banking tech. By quickly aggregating the customers data (with their permission, of course), their financial situation can be assessed, and accurate advice provided. Partnership and collaboration can serve the building societies with just as much impact as they the challenger banks and the incumbents.

Created to enable the pooling of community resources so that members could purchase a home (crowd funding in the pre internet age), building societies have a clear opportunity to deliver innovative mortgage products and improve the processes of the existing product portfolios. As noted by Director of Digital & Innovation, Ant Warrington, at Yorkshire Building Society, ‘digital disruption is “only just starting” in the mortgage and savings market…For years, fintech challengers and innovations have been focused on current accounts and payments. Now, we’re seeing mortgages become essentially a digital business.”

Looking ahead and thinking beyond the much-discussed millennials, building societies need to think about their next generation of customer as well. Again, their history, structure and community-based roots can help them reach, albeit through digital channels, the Gen Z customer, who according to recent research by McKinseys, are much more likely to make purchasing decisions based on the ethics of a company. This is clearly a position that fits well with the building society mission statement.

We often hear from start-ups that who they want to meet when they work with us are senior level people from large financial institutions. Building Societies, however, comprise of a pool of institutions with over 25 million customers, many of whom who are formulating a digital strategy and are well-aware of the changing dynamics of the industry. The power of technology driven start-ups, partnered with long-established community-based institutions could well deliver a compelling challenger proposition. Sound good? Join us at FinTECHTalents 2019, to meet with some leading Building Societies, discuss partnerships, collaboration and the future of financial services.